Fire Sale Over in Europe Oil Stocks Trading at Peak to Peers

Updated on
  • Stoxx 600 energy companies rallied as much as 22% from low
  • Deutsche Asset now focusing on consumer, financial shares

Oil Market Driver: Supply, Demand, or Production Cost?

European energy companies have staged one of the biggest recoveries among industries this year. Deutsche Asset Management’s Juan Barriobero, who bought the shares when they bottomed out, has stopped because they’ve become too expensive.

Oil and gas producers in the Stoxx Europe 600 Index have rebounded 19 percent since their lows in January as crude prices surged more than 50 percent. That took their valuation to about 19 times estimated earnings, a 30 percent premium to the broader market.

“One of our biggest portfolio shifts this year was to go from underweight energy stocks to neutral at the start of the year,” said Barriobero, a fund manager at Deutsche Bank AG’s investment arm in Madrid. His firm oversees 10 billion euros ($11 billion) in European equities, and his DWS Crecimiento FI fund has climbed 4.6 percent in the past month, beating 78 percent of its peers. “We don’t see prices rising much further in the short term, so we’re keeping our neutral position for now.”

With an estimate for oil to trade at an average $40 a barrel in 2016 -- near the current price -- Deutsche Asset Management doesn’t see much more room for appreciation. While energy stocks have been among the best performers in the equity rebound, analysts have kept slashing profit-growth projections and are now forecasting a 32 percent decline for this year, the worst among Stoxx 600 industries. Just three months ago, they predicted gains.

Barriobero is now focusing on companies that get most of their sales from the euro area. He has bought consumer and non-bank financial shares on optimism that they’ll benefit from the regions’ economic growth, though he declined to mention specific names. Analysts expect corporate earnings for those sectors to rise in 2016.

The European Central Bank added to stimulus measures this month to support the economy, forecast to grow 1.5 percent this year. Consumer-related shares such as retailers and food makers have rebounded less than 9 percent since the Feb. 11 low, trailing behind the broader market. Financial firms trade at 14.8 times estimated profits, slightly less than the multiple for the Stoxx 600.